Major Firms Concerned Over Health of Small Suppliers

Jun. 2, 2013 - 04:07PM
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WASHINGTON — Everyone from the US defense secretary to the service chiefs to industry executives at major companies are concerned about the health of the smaller, specialized parts suppliers that keep planes flying, ships steaming and trucks on the road.

But what to do about them as the defense sector constricts and commercial markets rebound is a problem that no one has managed to solve.

Over the past few years of belt tightening at the Pentagon — with fewer new start programs coming on line — “certainly you’ve seen some consolidation in the supply base and I think that is a significant concern to everyone in the business,” said Rick Edwards, executive vice president for Lockheed Martin’s Missiles and Fire Control business.

During a May 15 interview at the Special Operations Forces Industry Conference in Tampa, Fla., Edwards offered a candid assessment of how surging markets like domestic oil and natural gas production may be luring some second- and third-tier suppliers from the defense industry, and the difficulties the industry is facing recruiting and retaining qualified engineers in a tightening, and highly competitive, market.

“Being in the defense business requires a level of rigor and discipline that doesn’t come free,” he said, particularly when you see the current upswing in some commercial markets that could encourage smaller companies to abandon the defense sector where the volume of work is going down.

Precision machining, in particular, is an industry that is taking advantage of the booming domestic energy and drilling market, where companies can make more money machining parts for the oil business than they can making parts for programs such as the Hellfire missile.

Army Chief of Staff Gen. Ray Odierno echoed the concern over retaining smaller suppliers in a May 29 speech when he fretted over “the smaller [companies] who do so much for us in terms of developing some niche technologies. How do we keep them going as we reduce budgets?”

One of Lockheed’s answers involves stepping in and helping them, regardless of whether they want the assistance.

“Supporting and helping our suppliers is not something that’s optional,” Edwards said. “You are dependent on them for success and we view them as an integral part of our team because if the product fails or doesn’t deliver, that’s a reflection on Lockheed Martin. So we are not reluctant to go help them, even if they don’t want the help, quite honestly.”

He said that this level of interdiction with suppliers “has probably doubled in the last couple years” as the volume of work has gone down. And there doesn’t look to be a lot of help on the horizon. In a rather downcast assessment of what’s to come, the Pentagon’s chief for industrial base and manufacturing policy, Brett Lambert, told a Washington industry crowd on April 25 that while he is working to identify the most critical aspects of the industrial base that must be sustained, “there’s going to be a lot of bad news that’s given out to companies” over the next several years.

“We should make no illusions,” Lambert said. “We will identify critical key suppliers that will go under because we will have made the assumption, based on our strategy moving forward, that that is no longer a critical capability to our future force.”

As the Pentagon looks to spend less on new start programs and attempts to incorporate more mature technologies on the few new programs in development, a large burden is being shifted to industry to bring new solutions to the table, and sooner.

With this in mind, Edwards said that in his business segment, the biggest employer of his engineers is in internal research and development (IRAD).

Spending on IRAD generates products quickly and keeps engineers sharp. It also keeps them working.

“I want to be able to keep my technical base — my design engineers — engaged so they don’t look at this thing and say, ‘We’re in a defense downturn, there aren’t a lot of development programs, I think I’ll go take that job designing Madden 2020’ or something. That’s an issue,” he said.

Adding to the problem is the fact that the demographics of engineering schools don’t always work in favor of the defense industry. In most years, about 30 to 35 percent of engineering graduates are US citizens who can get clearances, which means that the pool for qualified talent is small, and there are many opportunities for graduates across a variety of industries.

But Edwards said the people who do work for him are going to remain busy, anticipating the next requirement from a customer who, while reducing its buys, will continue to invest what it can in new solutions.